Inside Politics – The Policy Exchange newsletter (London), 19 October 2007

For the past three years, one of the Government’s favourite ideas in relation to housing policy was a proposed new tax called the Planning Gain Supplement (PGS). This was meant to tax some of the uplift in land values once planning permission has been granted, and use this money to finance the infrastructure for the new development.

But what at first sight looks like a perfectly reasonable idea had many pitfalls in practice. It was not at all clear how high the PGS would be set. Furthermore, it was a national tax that would have had to be redistributed to the local level. Worst of all, it would have needed precise land valuations before and after planning permission. In other words, the PGS could have become a bureaucratic nightmare.

Fortunately, the Government asked for submissions of better proposals to raise money for local infrastructure. We at Policy Exchange, for example, have long argued that (fixed) planning tariffs would be much easier to implement. Besides, they could be administered locally so local government would no longer be entirely dependent on the Treasury for funding.

We also asked our colleagues from other think tanks and academics for their ideas, and in the end had a submission ready to be sent to the Department for Communities and Local Government that was signed not only by us, but also by the IPPR, CentreForum, lecturers, professors from the LSE, Queen Mary and Reading University as well as two Liberal Democrat frontbenchers.

But as we were just about to send it off, the Comprehensive Spending Review (CSR) changed the debate again. Largely unnoticed by the public, the Government quietly dropped its PGS plans, at least for this Parliament. And what did they propose instead? A planning tariff. It was almost as though they had seen our submission before we sent it.

Although it is not clear what form it will eventually take – and Housing Minister Yvette Cooper MP did not seem to have a precise idea when I spoke to her earlier this week – it is likely to move in the direction that Policy Exchange had suggested since we published Better Homes, Greener Cities in February 2006.

This is all very encouraging. Hopefully the debate about PGS is over and the discussion can move on to making the tariff work. If properly designed, it could both strengthen local democracy and help to build the houses this country needs.